Friday, September 16, 2016

Deutsche Bank: How Big A Hole Could A Fine Blow In The Balance Sheet?

Following up on "Deutsche Bank Is Asked to Pay $14 Billion to Resolve U.S. Probe Into Mortgage Securities (DB)".
From Breakingviews:

Smaller fine might still force Deutsche fire sale
A few billion dollars more or less can make a big difference to Deutsche Bank’s future. The German lender insisted on Sept. 15 that it wouldn’t pay nearly as much as the $14 billion (12.5 billion euro) settlement proposed by the U.S. Department of Justice (DOJ) to settle charges related to its mortgage securities business.  But a Breakingviews calculator shows that even shelling out two-thirds of that amount would stretch its capital ratios.
(Click on the image to download our spreadsheet calculator, 42 KB)
France’s BNP Paribas handed over just under $9 billion for sanctions violations two years ago. But it was far more profitable than Deutsche is now and thus better able to plump up its capital cushion with retained earnings. At the end of the quarter in which it was fined, BNP Paribas’ common equity Tier 1 capital as a proportion of its risk-weighted assets was still 10 percent. It looked almost as if the penalty had been set with that ratio threshold in mind.

Apply a similar logic to Deutsche and, as things stand, it could absorb a fine of close to 8 billion euros while maintaining a 10 percent ratio. That takes into account current legal reserves of 5.5 billion euros, just over half of which are assumed to have been earmarked for this DOJ fine.
(Deutsche still has to resolve charges relating to Russian equity trades, currency market manipulation and money laundering)....MORE